Home Sales Enter The Bitcoin Age

March 1, 2018

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A little over a year ago, in
a first for Southern California, a buyer used roughly 3,300 bitcoins to buy a
Cape Cod-style mansion in Manhattan Beach for $3.225 million.

Had he waited a year, that
same number of bitcoins could've bought multiple beach houses, a few penthouse
condos and a private island in the Caribbean. So it goes in the volatile
get-it-while-you-can world of cryptocurrency deals for real estate.

Bitcoin is an open-source
digital currency that, through its peer-to-peer exchange system, avoids the
need for banks. Its value has increased tenfoldin the last year,
leaving investors scrambling to make a profit off the tumultuous chaos.

A bitcoin real estate transaction
is the confluence of two extremely bubble-prone fields. Although the technology
is still in the early stages and few people are actually buying goods with the
currency, real estate presents a compelling use case for bitcoin — even though
spending it to buy a home can lead to a legion of unforeseen frustrations.

Already, a handful of
bitcoin-seeking luxury real estate listings have popped up around the country,
and experts predict the digital currency could grow to be a viable means of
home buying.

"Within the context of
real estate, it makes sense to use cryptocurrency in those types of
transactions," said Neeraj Agrawal, director of communications at
cryptocurrency-focused think tank Coin Center. "Cryptocurrency is a way to
send large amounts of money pretty easily with relatively low fees and little
interference from middlemen."

Given the advantages of
cryptocurrency compared with cash, Agrawal said that if it does catch on, it'll
probably be used to buy big-ticket things such as homes and cars rather than
inexpensive goods such as Metro swipes or cups of coffee. Brands including
Subway, Microsoft and Overstock.com accept bitcoin.

In San Diego, a company
brokering the sale of two multimillion-dollar homes said recently that it would
accept bitcoin as payment. The custom-built homes are listed for sale for $19.8
million, the equivalent of about 1,750 bitcoins. The sellers will also accept
cash.

"We realized there is
so much new wealth in the crypto space," said Andrew Canter, chief
executive of real estate brokerage and investment firm Canter Cos. "There
are a lot of new buyers and a lot of people that have seen their wealth
fluctuate over the last year."

Canter is selling his own
home and his friend Alan Ezier's. He said accepting the bitcoin for the
purchase was a different way of marketing the homes by getting the properties
in front of an untapped group of potential buyers.

If the buyer pays in
bitcoin, Canter said, the sellers plan on taking steps to manage the potential
risk. He said they will probably use an investment bank that will write a
futures contract to lock in for several months whatever bitcoin is valued at
when a sales deal is struck. Futures are a contract to buy or sell an asset at
a specific date for a specific price.

"It's a personal
preference when it comes down to it," Canter said. "I don't think we
can speak to a financial benefit here or there. Obviously, the chance
[bitcoin's value] goes up is just as much as it goes down right now."

There is no real tax
advantage to selling a home for bitcoin, said accountant Vincenzo Villamena, a
New York-based expert in digital currency. If the seller then resells the bitcoin,
he or she may have to pay capital gains taxes so it cuts into money earned on
the sale, he said.

Villamena said anyone
involved in the transaction looking for secrecy would have trouble because home
sales are rigorously documented.

"If you think [bitcoin]
will go to the moon, then sell a house and the coin might be worth 10 times
that in the coming years," he said. "If you [as the buyer] think it
will go to zero, then you might have gotten yourself a free asset."

One of the first reported
single-family home purchases using bitcoin took place in September in Austin.
When Kuper Sotheby's International Realty facilitated the sale, bitcoin was
worth $3,429. The firm said it converted the bitcoin to dollars in 10 minutes
to give to the seller.

In that case, the bitcoin
buyer missed out on a substantial price increase in the coming months. Bitcoin
hit a high of $19,343 on Dec. 16 and has since slid back to $10,319 as of late
Wednesday, Coindesk said.

Similar scenarios played out
in Manhattan Beach last year.

At the time of the January
2017 purchase, it cost 3,300 bitcoins to buy the home for $3.225 million. At
its value a year later, 3,300 bitcoins equals around $34 million – which is
likely a hard pill to swallow for both the buyer and the seller, who had the
bitcoin immediately converted into cash, according to Mike Michalski of RE/Max
Estate Properties, who co-listed the property with Sachi Fujita.

In late April, when the
price of one bitcoin hovered around $1,400, a buyer paid roughly 1,285 bitcoins
for a 1960s custom-built home in Manhattan Beach for $1.8 million. Today, that
same amount would buy a home worth $13.3 million.

One challenge with using
bitcoin is that it's still so new that many companies involved in a typical
home-buying transaction are unfamiliar with how to process deals involving
cryptocurrency.

Justin Miller, a Realtor
whose agency, Beach City Brokers, represented the buyers in both Manhattan
Beach deals, wasn't sure where to start when trying to incorporate bitcoin into
the sale.

"I started asking
around to different escrow and title companies to see how I could put the deal
together, but I was getting the door shut on me," Miller said. "No
one wanted to deal with bitcoin. They didn't understand it."

Usually, these companies
hold and regulate the payment between the buyer and seller, but with the
ambiguity and rapid fluctuation of bitcoin, some refuse to get involved.

Josh Cincinnati, executive
director of the Zcash Foundation, planned to buy a house in Virginia with some
of the cash he'd accumulated through his bitcoin investments.

His loan officer at Chase,
however, told him that the bank wouldn't consider the money in his bank account
as part of the liquidity required to approve a conventional loan because they
weren't sure of its origins.

"The loan officer said
the documentation I provided wasn't enough to prove that the amount deposited
in my account was received from a legitimate trade," Cincinnati said.

To go above and beyond the
two months of bank statements Chase required to approve the loan, Cincinnati
provided a full history of his cryptocurrency transactions for the last two
years ­— to no avail.

Fearing the delays would
threaten the home sale, he sought a loan from Fulton Mortgage instead. He
received full approval there, but not before he was forced to renegotiate an
extension of his mortgage approval stipulation in his purchase contract with
the seller.

That's not the only
challenge the emerging payment form represents for the industry. How do you
provide proof of funds when the funds don't physically exist?

"Proof of funds for a
bitcoin sale literally requires the buyer to sit down with a smartphone, open a
blockchain app that displays the total value of their bitcoin and show that to
the seller," Michalski said.

"Both the buyer and
seller wanted to make the deal happen, but this is all new," Michalski
said. "There's just not a lot of understanding or documentation."

With buyers eager to cash in
on the historically high prices, and sellers offering up homes as a way to get
a piece of the pie, deals are happening regardless of the hurdles.

In addition, websites are
popping up that allow anyone to list a property for bitcoin.

Homeowner Alex Bartilotti
put his home in Portugal on the market for $1.2 million, but found no interest
after two weeks. He updated the listing, adding that he'd also accept 100
bitcoins, and immediately received six inquiries about the home.

Whether bitcoin will further
integrate into the real estate industry is largely dependent on the markets. In
the meantime, Miller's getting a head start.

His brokerage handled three
bitcoin real estate transactions last year, and had three listings with a
bitcoin payment option hitting the market in February.

Pointing to Amazon's new
"no checkout" grocery stores, he said, "People are getting more
savvy in the ways they pay for things. At the end of the day, if there's an
easier and more efficient way, and if bitcoin is able to eliminate wires and
banking fees, it will have a future."